The naira weakened on the forward market on Monday and Nigerian stocks fell as investors worried that delaying elections for a week could lead to a contested result, fuelling uncertainty, analysts said.
Investors who last week started to snap-up some Naira asset classes in positioning for possible post-election gains may no doubt have got a piece of unforeseen disappointments which now makes them to rethink earlier positions.
Nigeria’s electoral commission over the weekend postponed for one week a presidential election, hours before polls were due to open. It cited logistical reasons and denied political pressure had played any part.
The one-year non-deliverable naira forward opened at a quote of 401 per dollar, compared with 397 in the previous session. Stocks dropped as much as 2.51 percent to a one-week low. They had climbed past a three-month high on Friday.
“Looking ahead into the week, we expect developments in the polity, following the postponement of the Presidential and National Assembly elections, to stoke a cautious theme in the equity market,” said equity research analysts at United Capital plc in their February 18 investment view.
Investors had started to pick up shares to position for a post-election rally, assuming that the election would pass without violence or other problems. That boosted dollar liquidity on the currency market.
The delay hit Nigeria’s dollar-denominated bond yields and could affect demand at a government naira debt auction this week.
“The economic consequences of this decision will be felt significantly, as what was supposed to be a smooth process is now mired in lengthened uncertainty and controversy, thereby shaking investor confidence and somewhat eroding the renewed interest from both foreign and domestic investors”, Lagos-based analysts at Vetiva Capital said in its February 18 note.
“While we expect investors to seek haven in short-term instruments in the fixed income market, activity on the long end will be more tepid. Away from the capital markets, the effect on the wider economy also cannot be understated due to the disruption to key sectors of the economy including Maritime, Aviation, and Oil & Gas,” Vetiva Capital further stated.
“The sudden postponement few hours to election period was a sad commentary. It has deepened Nigeria’s political risk with dire consequences on investment decision,” said Sola Oni, a Lagos-based stockbroker. He said that the shock caused by the announcement may jolt foreign portfolio investors (FPIs) who have been apprehensive of the presidential election.
IHEANYI NWACHUKWU
